In this Communication, the European Commission addresses the question of modernising European social systems in the context of globalisation. It identifies measures which must be taken at both European and national levels in order to meet the new challenges and help achieve Europe's priority objectives in the area of growth and employment. These measures concern mainly the completion of the internal market, particularly in the field of energy, and the implementation of reforms at national level in employment, pensions and health care.

ACT

Communication from the Commission to the European Parliament, of 20 October 2005, "European values in the globalised world - Contribution of the Commission to the October Meeting of Heads of State and Government" [COM(2005) 525 final - Not published in the Official Journal].

SUMMARY

Europe has historically had a high level of prosperity, social cohesion, environmental protection and quality of life based on the common values of solidarity and justice. Today, however, exclusion is a reality in Europe: the unemployment rate remains high (19 million unemployed in the EU), growth is slowing, and child poverty and inequality are on the increase.

Consequently, if Europe does not succeed in meeting the new challenges posed by new technologies, mobility, an ageing population and global competition, there is a risk that a socioeconomic duality that is both inclusive and exclusive will emerge on a long-term basis. This would also increase the gap between Europe and the rest of the world.

Hence the need to modernise and reform our social systems, a need symbolised by the process of reform begun in Lisbon in March 2000.

"Unity in diversity": the reality of European social models

The EU's Member States have developed their own socioeconomic models, reflecting their history and their collective choices. Each of these national models is underpinned by European characteristics:

common elements such as public pensions, health and long-term care, social protection, labour market regulation and redistribution through tax policies;

shared values such as solidarity and cohesion, equal opportunities and the fight against all forms of discrimination, health and safety in the workplace, universal access to education and healthcare, quality of life and quality in work, sustainable development and the involvement of civil society;

role of the public sector in the organisation and financing of national systems, much more so than in America or Asia;

a strong "European dimension" reinforcing national systems;

a tradition of social dialogue and partnership between governments, industry and trade unions.

However, besides these points which Member States have in common, the Commission underlines the significance of disparities within the EU. For example, Lithuania, Latvia and Ireland spend 14 to 15% of GDP on social protection systems, while France and Sweden spend 30%. In addition, the level of public pensions may be twice as high in one country as in another, varying from between 31 and 37% of average earnings in Ireland, the UK and Belgium to over 70% in Austria, Finland, Hungary, Italy, Luxembourg, Portugal and Spain. It seems, therefore, that no Member State has yet found all the answers, despite the relative convergence in their approaches.

Findings and challenges: completing the transformation

The social reality in Europe today includes the challenges of unemployment, globalisation and population ageing.

The number one social problem is without doubt the persistent unemployment in the EU: 19 million people including mainly young people, women, migrants and older workers (aged 55 to 64).

In addition, weaknesses in education, research, innovation and productivity are holding back labour markets and economic performance in some Member States. The barriers to entry and exit on the job market are too high. Finally, the gap between the rich and the poor in the EU, both within Member States and between them, is considerable and is still widening.

Today, globalisation is no longer a choice but a reality. The emergence of new economic giants such as China and India puts the European economy to the test more than ever, in terms of trade, investment, technology, energy and production costs. Although knowledge and technology are important in Europe, the lack of qualified staff undermines the productivity of European companies.

The ageing of the European population is a reality in the Europe of the future. Based on current trends, the EU population will be both smaller and older due to low birth rates. According to statistics, by 2050 there will be 48 million fewer 15-64 year olds and 58 million more people over 65. The repercussions for Europe are considerable.

The reduction in the workforce will slow down growth (from 2 to 2.5% today it could fall to just 1.25% by 2040). Slower growth will come at a time when the costs of an ageing population start to peak (an increase varying between 4 and 8% of GDP across Member States). The sustainability of public finances is therefore at risk. Life expectancy will continue to increase, however, and in 45 years it will have risen to 81 for men and 86 for women.

Finally, while migration to the Union does not on its own provide a long-term solution, the Member States and the EU institutions have already adopted other measures. At national level, several countries have undertaken significant reforms of pension systems and of early retirement arrangements. At EU level, macroeconomic policies offer Member States a path towards stability and sound public finances. The reforms agreed within the Lisbon Agenda should also provide solutions.

While many reforms have already been undertaken in some Member States, Europe can no longer afford to wait. It is extremely well placed to help this transformation, with its economic and monetary stability, its scale (the largest trading block in the world), its financial resources (EU funding and programmes) and its external instruments (enlargement and development policies).

Responding to the challenges

While the Member States are more involved in social policy, the EU has an important part to play in the process of modernisation. The Europe of 25 Member States, with shared values and strong institutions acting together, may in fact be better equipped to deal with globalisation. Moreover, the European Union has a unique set of instruments at its disposal: in addition to its legislative, executive and judicial powers, it acts as a catalyst for new ideas and reform.

The Commission therefore recommends action based on:

greater coherence and coordination both between the different decision makers and between economic and social policies;

economic, labour market and social modernisation;

strengthening social justice by means of economic and labour market reforms;

greater coordination between the different levels of power (European, national, sub-national).

Various initiatives should be taken at European level:

completion of the internal market, including for services, telecoms, energy, and financial services;

delivery of more open and fairer markets;

promotion of enterprise;

improvement of the regulatory environment at EU level;

opening of third-country markets for European producers;

adoption of an agreement on the Financial Perspectives by the end of the year and on the principle of a new Globalisation Adjustment Fund;

ensuring the proper functioning of EMU as a key precondition to creating growth and jobs;

improving European economic governance and strengthening the coordination of economic and social policies.

Four objectives were set at national level:

to implement the agreed structural reforms and policies within the renewed Lisbon Strategy for growth and jobs;

to raise employment rates and reduce unemployment;

to adapt pension, health and long-term care to meet changing needs;

to offer innovative solutions for the low paid.

Finally, the EU in partnership with the Member States must:

create an environment that champions innovation;

spell out a long-term and coherent energy policy;

direct more resources (both public and private) to education, training and skills;

promote a renewal of the social dialogue;

support efforts to deal with the social consequences of economic restructuring;

increase cooperation between Member States.

The Commission's message is therefore clear. In order to preserve our values, we must modernise and we must do it together.

Background

This Communication is part of the mid-term review of the Lisbon Strategy, one of the main objectives of which is the reform of social systems. In this field, one of its aims is to create more and better jobs through work incentives, the modernisation of social protection systems, increasing the adaptability of workers and enterprises and improving education and training.